Abu Dhabi chasing Dubai as GCC’s worst construction market

Arqaam Capital sees cut-throat competition, scaled back projects hurting contractors
Abu Dhabi chasing Dubai as GCC’s worst construction market
Abu Dhabis move to scale back projects is likely to hurt contractors, Arqaam said
By Claire Ferris-Lay
Thu 27 Oct 2011 07:49 AM

Abu
Dhabi is fast becoming the worst construction market in the GCC after Dubai
amid a scaling back of projects, investment bank Arqaam Capital said Wednesday.

A
scaling down of state-backed projects is expected to have repercussions on
developers, particularly Arabtec Holding and Drake & Scull International,
analyst Mohammad Kamal said in a research note.

“Abu
Dhabi is fast becoming the worst construction market in the GCC, after Dubai.
Cut-throat competition and a scale-down in government plans by 30 percent
during the year should have repercussions on backlog and margins on Arabtec and
Drake & Scull International,” he said.

“The
withdrawal of the Guggenheim Abu Dhabi tender is a salient example.”

News
that state-backed Tourism Development and Investment CO (TDIC) cancelled a
tender related to the construction of the Guggenheim museum was reported on
Sunday. The Abu Dhabi-based firm told contractors it was reviewing its
procurement strategy and will not be awarding contracts at this stage.

Bidders
for the tender included the Al Habtoor-Leighton Group, Arabtec, Saudi Oger,
Egypt's Orascom Construction and South Korea's Samsung C&T.

UAE-based
contractors and real estate developers were hit hard by the global financial
crisis with property prices dropping by about 60 percent from its 2008-peak.

Abu
Dhabi could see a further scaling back of non-essential projects, Kamal told
Arabian Business. “I can envisage infrastructure - everything from civil and
social infrastructure - being completed and handed over. Things like schools,
hospitals, roads, contracts on that nature are likely to go through,” he said

“I do,
however, expect a scale down across commercial construction in the sense of
residential space, retail outlets and office space capacity. Anything that the
private sector is involved in delivering will probably experience a contraction.”

Property
prices in the Gulf state have yet to bottom out and are expected to decline a
further 15-20 percent, said Arqaam. “We think there is a further leg down in
the UAE property market before residential and rents recover,” said the report.

“Despite
sparse evidence that secondary market residential prices and rental rates have
stabilized in H1 11, incoming capacity (+17 percent and +32 percent in Dubai
and Abu Dhabi, respectively), remains substantial, even when adjusted for
projects cancellations and delays.

“We see
further 15-20 percent in downside to prices and rents in FY 11-12.”

Arqaam
rated Dubai-based Emaar Properties, the developer of the world’s tallest tower,
as ‘buy’ but recommended investors ‘sell’ Abu Dhabi’s largest developer, Aldar
Properties.

Sorouh, Arabtec Holding and Drake & Skull International
were listed as ‘hold’ with an estimated share price of AED1.1, AED1.44 and
AED1.2, respectively.

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